Public Service Co. of Colorado v. Continental Cas. Co., s. 90-1320

• Decision Date: 03 June 1994
• Docket Number: 91-1201,Nos. 90-1320,s. 90-1320
• Citation: 26 F.3d 1508
• Parties: PUBLIC SERVICE COMPANY OF COLORADO, a Colorado corporation, Plaintiff-Appellee/Cross-Appellant, v. CONTINENTAL CASUALTY COMPANY, d/b/a CNA Insurance, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1508

26 F.3d 1508

29 Fed.R.Serv.3d 24

PUBLIC SERVICE COMPANY OF COLORADO, a Colorado corporation, Plaintiff-Appellee/Cross-Appellant, v. CONTINENTAL CASUALTY COMPANY, d/b/a CNA Insurance,

Defendant-Appellant/Cross-Appellee.

Nos. 90-1320, 91-1201.

United States Court of Appeals, Tenth Circuit.

June 3, 1994.

Timothy J. Flanagan of Kelly, Stansfield & O'Donnell (Daniel M. Fowler of Fowler, Schimberg & Cowman, and James R. McCotter of Public Service Co. of Colorado, Denver, CO, with him on the brief), for plaintiff-appellee/cross-appellant Public Service Co. of Colorado.

Susan Smith Fisher, P.C., Littleton, CO, for defendant-appellant/cross-appellee Continental Cas. Co. d/b/a CNA Ins.

Before SEYMOUR, Chief Judge, HOLLOWAY, Circuit Judge, and ROGERS, ^* District Judge.

HOLLOWAY, Circuit Judge.

Plaintiff-appellee Public Service Company of Colorado (PSC) brought this suit for declaratory relief and damages against defendant-appellant Continental Casualty Co., d/b/a CNA Insurance (CNA), seeking a declaratory judgment that an insurance policy issued by CNA to PSC covers the liability and expenses incurred by PSC in defending and settling a civil action entitled Waranch v. Public Service Company of Colorado, Civil Action No. 77-Z-491 (D.Colo.) (the Waranch action). CNA appeals the district court's entry of partial summary judgment in favor of PSC on the issues of coverage and damages. CNA also appeals the court's judgment, following a bench trial, finding CNA liable under its policy for most of the attorneys' fees and costs incurred by PSC in defending the Waranch action. PSC in turn cross-appeals the district court's denial of attorneys' fees and costs incurred in maintaining this action seeking a declaratory judgment and damages.

I.

A. The CNA Policy.

The insurance policy at issue is an Excess Third Party Liability Policy issued by CNA to PSC to provide excess coverage arising from third party bodily injury, property damage or workers compensation liability. The policy was attached as a "following form" to a Lloyd's of London renewal policy effective from December 31, 1973, to December 31, 1974. The Lloyd's renewal policy provided indemnity for 30% of $500,000 per covered loss, in excess of a $100,000 self-insured retention. The CNA excess policy insured the remaining 70% of any covered loss. Both policies contained the following insuring provisions:

1. To indemnify the Assured for any and all sums which they, the Assured, shall be legally liable to pay and shall pay as damages, direct or consequential, and/or expenses, as more fully defined by the term "ultimate net loss", on account of personal injuries and/or property damage caused by or growing out of each occurrence arising out of or due wholly or in part to the conduct of the Assured's business and/or act or omission of the Assured's agents and/or employees and/or contractors and/or subcontractors and/or public authorities when acting for the Assured.

(a) The term "occurrence" wherever used herein shall mean an accident or a happening or event or a continuous or repeated exposure to conditions which results in personal injury or property damage.

(b) The term "personal injuries" wherever used in this contract shall mean bodily injuries and/or disease and/or death including mental injury, mental anguish, shock, sickness, disability, false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, discrimination, humiliation; also libel, slander or defamation of character or invasion of rights of privacy, except that which arises out of any advertising activities.

Principal Brief of Appellant, App. 1 at 0022.

B. The Waranch Action.

The Waranch action against PSC was filed in May 1977. In their complaint, the plaintiffs (Mr. Waranch and his partner) alleged that during the policy period, PSC breached a contract with them by failing to provide natural gas service to a mobile home park they were then constructing, and that the failure to provide such service constituted common law discrimination and an unlawful statutory preference in violation of Colorado Revised Statutes Sec. 40-3-106 (1973). Plaintiffs sought compensatory damages, including lost profits of $3,000,000 and punitive damages of $2,000,000.

In July 1977 PSC's attorney, Mr. Bryans, notified Lloyd's of the suit by a letter. With regard to coverage, Mr. Bryans stated:

I expect there may be some argument over whether or not Public Service Company is covered under its excess policies in this action, but I did want to put you on notice in any event.

Principal Brief of Appellant, App. 1 at 0109.

In April 1980 the state trial judge granted partial summary judgment in favor of PSC on Waranch's contract claim. The judge also stayed the state court action, ordering the Waranch plaintiffs to exhaust their administrative remedies with the Colorado Public Utilities Commission (PUC) first. The PUC concluded that PSC had discriminated against the Waranch plaintiffs and other mobile home park owners in furnishing gas service in 1974. Principal Brief of Appellant, App. 1 at 0081-0083. However, before issuance of PUC's order, the state district judge set a jury trial on the remaining issues of common law discrimination and unlawful statutory preference.

In May 1983 the jury returned a general verdict against PSC, awarding the Waranch plaintiffs $300,000 in compensatory damages and $150,000 in punitive damages. Shortly thereafter the parties settled the Waranch litigation for $328,000 paid by PSC.

C. The Coverage Dispute.

In a letter to CNA's counsel in July 1983, PSC's attorney, Mr. Flanagan, indicated that the $328,000 settlement represented the jury's compensatory award plus the Waranch plaintiffs' out-of-pocket expenses in the Waranch litigation, not including attorneys' fees. Principal Brief of Appellant, App. 1 at 0111-0113. Mr. Flanagan stated: "I will be discussing this matter with my client [PSC] and determine whether it wishes to pursue the coverage issue with you." Id.

In a letter to Lloyd's agent Mendes & Mount in September 1983, PSC requested reimbursement from Lloyd's and CNA of $382,583.77, the purported excess covered loss over PSC's $100,000 self-insured retention, including both the settlement and cost of defense in the Waranch action. Principal Brief of Appellant, App. 1 at 0092. On October 6, 1983, Mendes & Mount denied the claim in writing. Id. at 0114-0115.

D. The Insurance Coverage Litigation.

In August 1986 PSC filed this suit for a declaratory judgment and damages against Lloyd's and CNA, alleging breach of the insurance contract. PSC sought a determination that the policy covered the settlement of the Waranch litigation, plus PSC's litigation costs, including attorneys' fees associated therewith. Shortly thereafter PSC settled its claim against Lloyd's, leaving CNA as the sole defendant.

In October 1986 CNA sought discovery from PSC, including all documents relating to the Waranch action. CNA also served document requests on Kelly, Stansfield & O'Donnell, the law firm that had represented PSC in the Waranch action, demanding all documents relating to the Waranch action, including invoices, bills and other documents reflecting attorney time or fees incurred in connection with the litigation.

In January 1987 PSC filed a motion for summary judgment in the instant case, arguing that as a matter of law, coverage existed under the CNA policy for its Waranch settlement and litigation expenses and that no genuine issue of material fact existed as to the amount of insured loss, including attorneys' fees. In its response, CNA argued that (1) the Waranch action was not an "occurrence" within the meaning of the policy, (2) triable issues of fact existed concerning damages to which PSC was entitled under the policy, and (3) triable issues existed concerning CNA's defense of waiver of coverage. CNA also noted that it had outstanding discovery requests relevant to both coverage and damages and that discovery could establish additional issues of fact for trial.

The district court denied PSC's motion for summary judgment as to damages but granted it as to coverage, stating:

[T]he language of the ... policy appears to be sufficiently clear that the Court can conclude as a matter of law that it covers this incident. The policy says the following: "The term 'occurrence' wherever here used shall mean an accident or a happening or event or a continued or repeated exposure to conditions which results in personal injury or property damage."

Contrary to some of the cases which have been cited by Defendant [CNA] and argued by Defendant which talk about accident which have specific clauses which rule out intentional discrimination--I have seen such policies--this one does not. It says, "accident or happening or event," which is certainly pretty broad, "resulting in personal injury or property damage." And then in fact we do have another definitional term which talks about personal injury and which does say personal injury covers; and then it lists many things, including discrimination.

Principal Brief of Appellant, App. 2 at 0266.

Meanwhile CNA had noticed the depositions of two members of the Kelly, Stansfield & O'Donnell firm who had been involved in defending PSC in the Waranch action. PSC moved for protective orders shielding PSC from CNA's deposition notices. In response, CNA argued that the requested depositions might uncover evidence relevant to the coverage and damages issues raised by PSC in its pending motion for summary judgment and thus were integral to CNA's defense.

The discovery motions were heard by the magistrate and taken under advisement. However, the magistrate's ruling was not issued until after the August 1987 hearing on PSC's motion for summary judgment, which resulted in partial summary judgment for PSC on the coverage issue. In his ruling on the discovery issues, the magistrate limited CNA's discovery to items relating to damages, the only...